As Commodity Prices Face Pressure and Oil Stays High, Will Farmers Embrace Natural Gas?

2012 promises to be a difficult year for farmers as an estimated 4.8% increase in U.S. corn production, coupled with increased planting of the crop worldwide, puts downward pressure on prices. Corn, which has doubled in the past two years due to demand for cattle feed, is expected to drop by 30% to $4.035/bushel next year in Chicago trading. The record U.S. wheat harvest which is also projected next year should depress wheat prices as well, according to a Bloomberg article.

But oil prices are expected to remain high.  Barclay’s senior economist Alia Moubayed said that the Saudis need $91 oil as a “break even point” in an interview on Bloomberg’s “Surveillance” yesterday. Social unrest swept the Middle East in 2011, and the Saudi government has attempted to quell dissent by promising increased social benefits. The Saudis need higher oil prices to keep those promises. Saudi Arabia’s massive production capacity means that they are a longtime swing producer who can influence the world oil price by simply increasing or decreasing production. U.S. oil producers also need $80 oil to stay profitable. Below $80 they begin slowing drilling and decreasing production.

This combination of higher input costs and lower grain prices, coupled with the recent price boom in farmland, promises to squeeze profits for farmers in 2012. This has many farmers looking for ways to cut costs.

Natural gas may be part of the answer. “Though there are costs to converting diesel powered machinery to run on a diesel/natural gas blend, a 20-30% savings in diesel fuel promises a quick return on investment for high volume diesel users.” said C&E Clean Energy Solution’s Brian Carpenter. Continue reading

Look out, Chicago: $5 gas headed your way

By Dave Siff

  • Analysts: Prices at the pump could hit $5 by Memorial Day
  • High oil prices, increasing exports driving gas prices up
  • Clark Howard says you better shop around!

Attention, drivers: Get ready for some serious pain at the pump.

Analysts tell the Los Angeles Times that gas prices will hit $4 a gallon or more by spring, and — hold on to your wallets — could reach $5 over Memorial Day weekend.

And those are just average prices. GasBuddy.com, which posts prices from around the country as reported by its more than 300,000 member motorists, predicts record prices in major cities all over the map this spring. The site forecasts $4.95 a gallon in Chicago and $4.70 in Los Angeles, with record prices also hitting Philadelphia, Seattle, Detroit, Miami, Minneapolis, Dallas and San Francisco. Continue reading

War With Iran May Be Imminent, Oil Could Spike to $200+ Per Barrel

In a story that’s breaking all over the internet, the U.S. has deployed troops to Israel in a joint exercise and “deployment.” The U.S. has also sent several anti-missile ships to the Strait of Hormuz in what many are calling a prelude to war with Iran. At the same time Israel is conducting the largest civilian drill in its history, specifically training the population to deal with missile attacks, and chemical and biological weapon threats.

Iran has pledged to close the strait of Hormuz to all shipping traffic.  1/4 of the world’s oil supply passes through the Strait of Hormuz every day.  As little as three years ago 1/3 of the world’s oil supply passed through the Strait, but thanks to hydraulic fracturing and horizontal drilling, the U.S. has seen sharp increases in its own domestic oil production.  This would lessen the impact of closure of the waterway, but the effects would still be severe, especially in the short term.

In addition to targeting commercial shipping with anti-ship missiles, the Iranians could also target Saudi oil production facilities. They have also pledged to attack Israel.  Any retaliation by Israel could spark a massive war in the region, crippling an already weakened world economy.  It has been predicted that any news of a war with Iran would immediately send oil to $175 per barrel, with $300-$500 per barrel possible if the conflict widens.

Global strategy experts have argued for years that war with Iran is ultimately unavoidable because the regime in Tehran refuses to abandon their nuclear weapons development program.

National Defense magazine estimated that a 30 day closure of the Strait of Hormuz would knock $85 billion off U.S. gdp. If the U.S. could cut it’s oil use by 30% then that number would drop to virtually zero.

The continued use of safe and effective technologies like horizontal drilling and hydraulic fracturing has dramatically increased the supply of oil available domestically and can continue to do so, but that might not be enough to get the United States where we need to be as far as energy security.

Alternative energies like solar and wind can certainly be helpful in diminishing oil’s role in our energy economy but they are not enough.  Improved battery technology promises to make electric cars more useful with longer ranges, however battery life is severely reduced in the very cold winters that we have in the upper Midwest, and heating and cooling the vehicle also dramatically reduce driving range.

Natural gas as a motor fuel is really the only option for us right now. The immediate and aggressive promotion of natural gas vehicle technology would greatly reduce the economic impact of a war with Iran.

Has Fracking Delayed Peak Oil?

By Brian Carpenter

Peak Oil Theory relies on the work of the late geologist M. King Hubbert. Hubbert, a geoscientist who worked for Shell, studied the production curve of oil fields in Texas during the 1950’s. He came to the conclusion that every oil field’s production takes the shape of a bell curve, and that data could be extrapolated to predict the production of a whole nation. In 1956 he predicted that oil production would peak in the United States by the early 1970’s. Hubbert’s prophecy came true. U.S. oil production peaked in late 1971 at about 9.5 million barrels per day. Even though many new wells were drilled, the U.S. produced less and less oil each year. Hubbert, who died in 1989, also predicted that world oil production would peak in 1995. Technological developments and changes in use patterns seemed to have shifted that date, but most revised scenarios have world oil production peaking in the first decade of the 21st century.

The concern that oil production will decline while world population and energy demand continue to increase has generated a lot of concern that the world might be headed for a nightmare scenario of resource wars, starvation, and the ultimate collapse of civilization. Food production was predicted to plummet as tractors sat idle for lack of fuel and petroleum-based fertilizers were unavailable. Transportation would be thrown back into the 19th century. Medicines and plastics, which are derived from petroleum, would become unavailable. The whole world economy would have to be dismantled and rebuilt on another basis besides fossil fuels. Peak Oil concerns have been a major driver behind the efforts to develop alternative energy technologies.

However, a quiet revolution has taken place in the energy industry, and it will have a big effect on the Peak Oil discussion. In the early 2000’s, engineers combined two older technologies with dramatic results. Horizontal drilling allowed for fewer wells to be drilled and for each well to produce more oil. It also meant that thin layers of oil and gas bearing shale could be efficiently accessed. Hydraulic fracturing of those horizontal wells greatly increased our ability to unlock more precious oil and gas from these unconventional sources.

This combination of technologies may well have shifted Hubbert’s Peak. This week in a speech at the World Petroleum Congress in Doha, Qatar Antonio Brufau, the CEO of Spanish petrogas giant Repsol, said, “The speed at which technology changes and its consequences have taken us largely by surprise. The peak oil debate, for example, has lost a great deal of its relevance in the past three years,”

Continue reading

Saudis Decide Not to Expand Oil Production Capacity, Focus on Natural Gas Instead

(Platts)–21Nov2011/537 am EST/1037 GMT

Saudi Arabia is focusing on developing its conventional gas reserves and expanding its downstream refining and chemicals industries rather than invest in expanding oil production beyond the kingdom’s needs, Saudi Aramco CEO Khalid al-Falih said Monday.

“Given the increased availability and distribution of oil reserves, I think there was pressure on the kingdom and on Saudi Arabia to raise production beyond the needs of Saudi Arabia. That pressure I would see is substantially reduced,” Falih said in a question and answer session of an energy event in Riyadh.

“Our focus is to invest heavily in gas, in downstream, in refining and, something that is new to Aramco, in chemicals,” Falih said, adding that this would provide the state-owned company a global footprint. Continue reading

The Saudis Need $90 Oil

By Ayesha Daya

Oct. 5 (Bloomberg) — The decline in OPEC’s oil below $100 a barrel for the first time since February is raising the likelihood the group will cut production, as Libya revives output and the global economic recovery falters.

The Organization of Petroleum Exporting Countries’ basket of crudes fell to $98.59 yesterday, down 18 percent from its highest level this year and within 2 percentage points of the 20 percent drop that’s deemed a bear market. Brent oil tumbled 21 percent from its April high and New York crude 34 percent.

Oil is sliding as the U.S., the world’s biggest energy consumer, shows signs it’s headed for a recession and Europe’s debt crisis deepens just as Total SA and Eni SpA resume Libyan production. OPEC, which supplies 40 percent of the world’s oil, will reduce output to prevent Brent falling below $90 because Middle East members are increasing spending, Continue reading

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